Iain Duncan Smith to unveil payment by results welfare system | Politics | The Guardian

Iain Duncan Smith will set out groundbreaking plans on Saturday for billions of pounds of private sector money to be invested in helping children early in their lives. He will also announce plans for an innovation fund aimed at getting the hardcore of 40,000 unemployed teenagers ready for work.

Investors, including those from the voluntary and private sectors, will receive a return drawn from the public spending savings Duncan Smith hopes will result from a subsequent fall in crime, welfare spending and other costs of social failure.

The work and pensions secretary, writing in the Guardian, calls the plans – due to be released in full next week – "the most exciting and challenging on the government's agenda".

On Friday, Duncan Smith caused controversy by urging British firms to stem worklessness in the UK by hiring more British workers rather than immigrants.

He regards his plans for innovatively funded schemes to break the cycle of deprivation and demotivation as the best way to make Britain's next generation more employable. He writes that the plans represent a powerful message about social justice, getting investors to do something positive for their communities while seeing a return on their investment. He adds: "This is how we can start re-engaging the top of society with those at the bottom, reviving the sense of shared community which has been missing for too long."

Private investors "will be encouraged to back projects with disadvantaged children and young people by rewarding [investors] with some of the savings to the public purse further down the line – but only if the investments work".

Duncan Smith has been working on separate plans on early intervention and teenage unemployment through his chairmanship of the cabinet social justice committee, and alongside a government-commissioned report to be released on Monday by the Labour MP Graham Allen.

In both cases, Duncan Smith believes the key lies in measures that give voluntary and private service providers access to capital markets. The financiers will receive a return once fixed outcomes are achieved.

In a sign of high-level support from financiers and child experts, Allen will unveil his plans at an event in the City alongside Duncan Smith and Oliver Letwin, David Cameron's senior policy adviser.

It is the most ambitious attempt yet to put a payment by results system at the heart of the government's public service reform agenda.

The aim would be to see a fundamental shift in state-backed spending away from "late intervention", exemplified by prison, obesity treatment and welfare, to "early intervention", represented by parenting courses, nurse-family partnerships, ante-natal courses and Sure Start.

Allen argues that at a time of public spending cuts, early intervention "could turn out to be the smartest decision local and national government ever made".

Duncan Smith and Allen, drawing on a wealth of social science, both hold near-deterministic views on the importance of the first two years of childhood. Duncan Smith writes that "a child's life development score at just 22 months can serve as an accurate predictor of educational outcomes at 26 years".

In an index of potential savings available from early intervention, official figures suggest 46,000 problem families each cost nearly £100,000 a year in benefits and public services.

Duncan Smith will also seek bids for a new three-year, £30m Department for Work and Pensions fund open to contractors to experiment with ways of helping more than 40,000 "Neet" teenagers (not in education, employment or training) at risk of unemployment for a year or more. The financiers will cover the delivery costs on behalf of the provider, and the DWP will pay the financiers an agreed sum if specified outcomes are achieved.

The DWP claims that the lifetime cost of young people remaining Neet is £56,000 a head in extra government spending.

The government believes the social impact investment market could grow to £1bn on a payment by results model focusing on areas such as improved outcomes for children, reducing addiction and reoffending.

Allen will propose a semi-independent early intervention foundation to introduce schemes to improve child development. He will also propose a £200m early intervention fund in co-operation with the proposed Big Society Bank. He will urge the Treasury in the next budget to come up with tax breaks for charities and companies investing in social impact bonds. In the case of early intervention, ministers recognise the scheme could take 15 years to bear fruit.

via guardian.co.uk